Blockchain networks are gradually changing the nature of transactions through on-chain infrastructures. This fundamental building block facilitates on-chain transactions within the crypto ecosystem, allowing stakeholders to validate or verify these transactions. Unlike traditional finance, where transactions take place off-chain, the crypto ecosystem has introduced public ledgers such as Bitcoin and Ethereum’s blockchains that anyone can track.
The Bitcoin and Ethereum blockchain ecosystems are Layer-1 blockchains, given that transactions and operations are settled on the base layer. These are the pioneer chains and enjoy significant dominance in market capitalization and adoption. However, the growth of the crypto ecosystem is now challenging the capacity of Layer-1 blockchains, forcing innovators to debut scalability and interoperability solutions.
Some of the scalability solutions that have since come up include Layer-2 chains and cross-chain bridges; the former niche focuses on solving scalability while the latter solves interoperability. Recent months have been fascinating with Layer-2 chains launching on Ethereum and Binance Smart Chain (BSC), amongst other Layer-1 networks.
While there has been much hype on Layer-2 solutions, cross-chain networks have been quietly growing and now closer than ever to integrate the blockchain ecosystem. Several cross-chain projects have already launched mainnet solutions and connect various blockchain environments, including Layer-1 to Layer-2 and Layer-2 to Layer-2 networks.
The Value Proposition of Cross-Chains
At the core, blockchain ecosystems like Bitcoin and Ethereum have been designed to operate independently. This means that crypto users are often limited to one network or have to go through lengthy processes to leverage the functionalities of various blockchain networks. A significant hindrance to the growth of the crypto ecosystem, although the narrative is now changing with the inception of cross-chain technology.
Cross-chain networks have emerged as a communication bridge between blockchain networks. This upcoming technology seeks to bridge the integration gap that has long existed within the crypto industry. Today, we have cross-chain solutions that integrate the latest innovations, including DeFi and NFTs, across several blockchain ecosystems.
Ideally, cross-chain networks are pivoting on the future of blockchain, where stakeholders will be operating on different networks. For instance, a developer can build a DApp on Ethereum and leverage cross-chain technology to enable this application to operate on other networks such as Polkadot or Binance Smart Chain (BSC). In doing so, the DApp is exposed to more liquidity and crypto market products.
Cross-Chain Solutions in Action
While the innovations around cross-chain technology have gained momentum, only a few projects have launched practical solutions. Some of the projects that seem to be setting the pace include Celer Network’s cBridge, Spores NFT cross-chain and Polkadex, a decentralized platform for swapping tokens in a peer-to-peer trustless environment.
The Celer cBridge is a multi-chain network built to enable low-cost and instant transfers across Ethereum’s main layer and subsequent Layer-2 chains. This multi-chain functionality is one of the Celer Network solutions as the project features other initiatives, including scalability solutions such as the Layer2.Finance platform. Unlike most cross-chain projects, which only act as a two-way bridge, Celer’s cBridge allows users to transfer value within the entire Ethereum ecosystem and other Layer-1 chains like Polkadot.
In addition, cBridge reduces the cost of hopping between multiple blockchain environments. DeFi users can leverage this bridge to move their funds from Layer-2 chains, including PoS Sidechains like Matic and Optimistic rollups such as Celer’s rollups and Arbitrum. Notably, cBridge is designed as a universal value transfer network and can increase the transaction rate across various blockchain environments by close to 1000,000x.
This interoperability solution is an extension of Celer’s Network state channel with a modification on the off-chain protocol to enable ‘multi homing’. Essentially, multi-homing bridges liquidity across the crypto ecosystem by enabling simultaneous node presence on Ethereum’s Layer-1 chain and rollups, including Celer, Optimism and Arbitrum. Developers can easily add a new chain on Celer’s cBridge by deploying CelerPay contracts on any EMV-compatible network or leverage a corresponding plug-in for non-EVM compatible chains like Polkadot.
Non-fungible Tokens (NFTs) have risen in popularity, gaining interest from the crypto community, entertainment industry, and sports. These tokens propose a significant value as each digital asset is unique, which means that one NFT token cannot directly be exchanged for another NFT token, as is the case with fungible tokens such as Bitcoin or Ether.
Spores Network NFT is of the projects spurring innovation within this nascent ecosystem. The project has developed a universally full-stack NFT platform where creators can mint, exchange and share their creative work. In addition, Spores features cross-chain interoperability, allowing users to interact with multiple DeFi protocols.
Creatives who mint tokens via the Spores NFT platform can sell these digital assets across various DeFi protocols or wrap them on different blockchain networks, including Ethereum, Polkadot and Binance Smart Chain (BSC). This allows the NFT owners to access other crypto services such as LP mining, lending and staking within the DeFi market. In doing so, Spores NFT bridges the liquidity gap between NFTs, DeFi and the real-world creative market.
Image Source: Polkadex
The Polkadex project features a decentralized order book that non-custodial operators support. Typically, DeFi projects apply the Automated Market Maker (AMM) model to build decentralized exchanges. Polkadex takes a different approach through its decentralized Layer-2 Polkadot-based exchange. The platform seeks to provide traders with a decentralized market environment while maintaining a good U/X.
This advanced order book has implemented a Layer-2 Trusted Execution Environment (TEE) that allows the functionality of non-custodial operators. In simple terms, the non-custodial operators are tasked with execution and order book maintenance while funds remain stored on the native blockchain. The funds can only be controlled via a user’s private key.
It is also quite noteworthy that Polkadex enhances its order book liquidity through Polkadot’s parachains which facilitate interaction with other blockchain networks. This order book is a first of its kind within the crypto ecosystem and will likely shape the future of decentralized exchanges through interoperability and Layer-2 TEE functionalities.
Cross-chain solutions will play an integral role in the advancement of blockchain ecosystems. This new technology stands a chance of connecting the segregated blockchain projects to build comprehensive solutions and communicative chains. Should the integration be successful, blockchain networks will soon be able to communicate fully. An achievement that will largely influence the mainstream adoption of blockchain and digital assets.